Financial Accounting, IFRS Edition: 2nd Edition

Appendix F

Payroll Accounting

Learning Objectives

After studying this appendix, you should be able to:

1 Compute and record the payroll for a pay period.

2 Describe and record employer payroll taxes.

3 Discuss the objectives of internal control for payroll.

While the mechanics of payroll accounting are the same around the world, the particular accounts used are country-specific. Each country has different laws, different health and social programs, and different taxes related to payroll. The examples in this appendix illustrate payroll accounting applied in the United States.

Accounting for Payroll

LEARNING OBJECTIVE 1

Compute and record the payroll for a pay period.

Payroll and related fringe benefits often make up a large percentage of current liabilities. Employee compensation is often the most significant expense that a company incurs. For example, Costco (USA) recently reported total employees of 103,000 and labor and fringe benefits costs that approximated 70% of the company's total cost of operations.

Payroll accounting involves more than paying employees' wages. Companies are required by law to maintain payroll records for each employee, to file and pay payroll taxes, and to comply with numerous state and federal tax laws related to employee compensation. Accounting for payroll has become much more complex due to these regulations.

The term “payroll” pertains to both salaries and wages. Managerial, administrative, and sales personnel are generally paid salaries. Salaries ...